Legg Mason loses more than $250 million in fiscal 4Q
BALTIMORE—Legg Mason Inc. lost more than $250 million in the fiscal fourth quarter as the investment manager set money aside for possible bailouts of funds suffering from turbulent markets, the company said Tuesday.
Legg Mason lost $255.5 million, or $1.81 per share, in the three months ending March 31, compared with profit of $172.5 million, or $1.19 per share, in the fourth quarter last year.
Analysts polled by Thomson Financial forecast a loss of 27 cents per share.
The main reason Legg Mason lost money during the quarter was a series of "capital support agreements" the company entered into with some of its own funds.
Legg Mason runs money market funds, which promise clients complete safety at a low interest rate. The funds lend clients' money at a higher interest rate and profit off the spread between what it collects on those loans and what it pays to clients.
Many of the loans these funds have issued have become illiquid and unreliable amid tumultuous capital markets. To ensure money-market clients get their money back, Legg Mason agreed to cover any losses in these funds.
The company committed $291 million after taxes to supporting these funds, money siphoned from profit. Legg Mason also recorded a $94.8 million loss because some management contracts the company bought have lost value.
Revenue, which the company derives mainly by charging fees for managing clients' investments, slipped 6 percent to $1.07 billion from $1.14 billion. Analysts expected higher revenue of $1.12 billion.
The fees Legg Mason charges for managing investments are based mostly on two things: the total value of investments managed by the company's funds, and the return on those investments.
Investments under management shrank 5 percent during the first quarter to $950.1 billion. Investments shrank 2 percent compared with the end of the fourth quarter last year.
Clients withdrew $24 billion from their stock and bond funds during the fourth quarter. Investments under management contracted also because many of the stocks and bonds in the company's funds lost value, Legg Mason said.
"This past quarter was among the most difficult we have ever faced and we are disappointed with our results," Chief Executive Mark R. Fetting said in a statement.
For fiscal 2008, profit was $267.6 million, or $1.86 per share, compared with profit of $646.8 million, or $4.48 per share, in fiscal 2007.
rising
falling 